TFSL filing — read by section

Item 2. Management’s Discussion and Analysis

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 
 
 
 Forward Looking Statements 
 This report contains forward-looking statements, which can be identified by the use of such words as estimate, project, believe, intend, anticipate, plan, seek, expect and similar expressions. These forward-looking statements include, among other things: 
 ● statements of our goals, intentions and expectations; 
 ● statements regarding our business plans and prospects and growth and operating strategies; 
 ● statements concerning trends in our provision for credit losses and charge-offs on loans and off-balance sheet exposures; 
 ● statements regarding the trends in factors affecting our financial condition and results of operations, including credit quality of our loan and investment portfolios; and 
 ● estimates of our risks and future costs and benefits. 
 
 These forward-looking statements are subject to significant risks, assumptions and uncertainties, including, among other things, the following important factors that could affect the actual outcome of future events: 
 ● significantly increased competition among depository and other financial institutions, including with respect to our ability to charge overdraft fees; 
 
 ● inflation and changes in the interest rate environment that reduce our interest margins or reduce the fair value of financial instruments, or our ability to originate loans; 
 
 ● general economic conditions, either globally, nationally or in our market areas, including employment prospects, real estate values and conditions that are worse than expected; 
 
 ● the strength or weakness of the real estate markets and of the consumer and commercial credit sectors and its impact on the credit quality of our loans and other assets, and changes in estimates of the allowance for credit losses; 
 
 ● decreased demand for our products and services and lower revenue and earnings because of a recession or other events; 
 
 ● changes in consumer spending, borrowing and savings habits, including repayment speeds on loans; 
 
 ● adverse changes and volatility in the securities markets, credit markets or real estate markets; 
 
 ● our ability to manage market risk, credit risk, liquidity risk, reputational risk, regulatory risk and compliance risk; 
 ● our ability to access cost-effective funding; 
 ● legislative or regulatory changes that adversely affect our business, including changes in regulatory costs and capital requirements and changes related to our ability to pay dividends and the ability of Third Federal Savings, MHC to waive dividends; 
 ● changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the FASB or the PCAOB; 
 
 ● the adoption of implementing regulations by a number of different regulatory bodies, and uncertainty in the exact nature, extent and timing of such regulations and the impact they will have on us; 
 
 ● our ability to enter new markets successfully and take advantage of growth opportunities; 
 
 ● the continuing governmental efforts to restructure the U.S. financial and regulatory system; 
 ● future adverse developments concerning Fannie Mae or Freddie Mac; 
 ● changes in monetary and fiscal policy of the U.S. Government, including policies of the U.S. Treasury, the Federal Reserve System, Fannie Mae, the OCC, FDIC, and others; 
 
 ● the ability of the U.S. Government to remain open, function properly and manage federal debt limits; 
 
 ● changes in policy and/or assessment rates of taxing authorities that adversely affect us or our customers; 
 ● changes in accounting and tax estimates; 
 
 ● changes in our organization and changes in expense trends, including but not limited to trends affecting non-performing assets, charge-offs and provisions for credit losses; 
 
 ● changes in liquidity, including the size and composition of our deposit portfolio, and the percentage of uninsured deposits in the portfolio; 
 ● the inability of third-party providers to perform their obligations to us; 
 ● our ability to retain key employees; 
 ● the effects of global or national war, conflict or acts of terrorism; 

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 ● civil unrest; 
 
 ● cyber-attacks, computer viruses and other technological risks that may breach the security of our websites or other systems to obtain unauthorized access to confidential information, destroy data or disable our systems; and 
 
 ● the impact of wide-spread pandemic, including COVID-19, and related government action, on our business and the economy. 
 Because of these and other uncertainties, our actual future results may be materially different from the results indicated by any forward-looking statements. Any forward-looking statement made by us in this report speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law. Please see Part II Other Information Item 1A. Risk Factors for a discussion of certain risks related to our business. 
 

 
 Overview 
 The business strategy of TFS Financial Corporation ("we," "us," or "our") is to operate as a well capitalized and profitable financial institution dedicated to providing exceptional personal service to our customers. 
 Since being organized in 1938, we grew to become, at the time of our initial public offering of stock in 2007, the nation’s largest mutually-owned savings and loan association based on total assets. We credit our success to our continued emphasis on our primary values: “Love, Trust, Respect, and a Commitment to Excellence, along with Having Fun.” Our values are reflected in the design and pricing of our loan and deposit products, as described below. Our values are further reflected in a long-term revitalization program encompassing the three-mile corridor of the Broadway-Slavic Village neighborhood in Cleveland, Ohio where our main office was established and continues to be located and where the educational programs we have established and/or support are located. We intend to continue to adhere to our primary values and to support our customers and the communities in which we operate as we pursue our mission to help people achieve the dream of home ownership and financial security while creating value for our customers, our communities, our associates and our shareholders. 
 The failures of three large domestic regional banks during the first half of 2023 negatively impacted consumer confidence and increased stress across the banking sector. The unprecedented implications of 2022 and 2023 fiscal policy coupled with geopolitics impacting energy markets and supply-chain constraints from global shutdowns culminated with high levels of inflation. The subsequent restrictive monetary policy approach has resulted in a heightened exposure of certain banking industry practices. Taking all of this into consideration, we remain committed to our mission, business model, and strategic approach. Specifically, (1) our capital ratios remain a primary source of financial strength; (2) our core deposits remain stable and the majority of our deposit accounts fall within FDIC insurance limits; (3) we maintain adequate access to contingent sources of liquidity; and (4) our risk management practices around an array of financial disciplines are robust and commensurate to an institution of our size and complexity. 
 Capital ratios remain a source of financial strength for the Company and the Association as all capital ratios, including the Company's Common Equity Tier 1 Capital ratio of 19.05%, exceed the regulatory requirement to be considered "Well Capitalized". Additional details on our capital ratios are reported in the Liquidity and Capital Resources section of this Item 2. 
 The Company maintains high-quality core deposits characterized by a high level of FDIC insured deposit accounts distributed primarily across our Ohio and Florida branch network in products tailored toward consumers seeking non-transactional savings. As of March 31, 2024, 96.1% of our $8.68 billion retail deposit base consists of accounts structured under the FDIC insured limit of $250,000. The Company has the ability to fund 100% of all uninsured deposit balances through sources described later in this Item 2 under the heading Liquidity and Capital Resources . 
 The Company retains ample and diverse sources of liquidity and funding, beyond deposits. At March 31, 2024, our combined additional borrowing capacity under the Association's blanket pledge arrangements with the FHLB of Cincinnati and the FRB Cleveland along with our ability to purchase Fed Funds through arrangements with other institutions exceeded $3.15 billion. We also hold marketable securities that could be sold and converted to cash. Further details about liquidity and funding are described in the section labelled Maintaining Access to Adequate Liquidity and Diverse Funding Sources to Support our Growth of this Item 2. 
 We operate a multi-disciplined risk management program that emphasizes stress testing and scenario analysis in the realms of interest rate risk, credit risk, market risk and liquidity risk. Key risk indicators are proactively monitored and reported throughout the organization, up to and including the Board of Directors. The program is supported by a multi-line of defense approach in which internal oversight functions of risk management and internal audit grant their fully autonomous opinion of the process with an ability to issue findings for remediation if deemed necessary. The program is also regularly exposed to outside scrutiny in the form of regulatory oversight and from our outside audit firm. Management established the risk 
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 management framework with an appropriate level of sophistication such that it fully encapsulates all identified areas of risk, in conjunction with a necessary level of governance, to promote the program’s intention of properly identifying and managing our risk profile. 
 Management believes that the following matters are those most critical to our success: (1) controlling our interest rate risk exposure; (2) monitoring and limiting our credit risk; (3) maintaining access to adequate liquidity and diverse funding sources to support our growth; and (4) monitoring and controlling our operating expenses. 
 Controlling Our Interest Rate Risk Exposure. Historically, our greatest risk has been our exposure to changes in interest rates. When we hold longer-term, fixed-rate assets, funded by liabilities with shorter-term re-pricing characteristics, we are exposed to potentially adverse impacts from changing interest rates, and most notably rising interest rates. Generally, and particularly over extended periods of time that encompass full economic cycles, interest rates associated with longer-term assets, like fixed-rate mortgages, have been higher than interest rates associated with shorter-term funding sources, like deposits. This difference has been an important component of our net interest income and is fundamental to our operations. 
 A challenge to our business model occurs when there is a rapid and substantial increase in short-term rates or there is an extended inverted yield curve, which have both occurred over recent periods. This economic environment has resulted in decreases in our net interest income and our net interest margin. 
 To mitigate our interest rate risk in general and to address the current rate environment specifically, we utilize a variety of strategies that include: 
 • Maintaining regulatory capital in excess of levels required to be considered well capitalized; 
 • Promoting adjustable-rate loans and shorter-term fixed-rate loans; 
 • Marketing home equity lines of credit, which carry an adjustable rate of interest, indexed to the prime rate; 
 • Opportunistically extending the duration of our funding sources; 
 • Utilizing interest rate swaps to convert short-term FHLB advances and brokered certificates of deposit into long-term, fixed rate borrowings; and 
 • Selectively selling a portion of our long-term, fixed-rate mortgage loans in the secondary market. 
 
 
 Levels of Regulatory Capital 
 At March 31, 2024, the Company’s Tier 1 (leverage) capital totaled $1.84 billion, or 10.72% of net average assets and 19.05% of risk-weighted assets, while the Association’s Tier 1 (leverage) capital totaled $1.68 billion, or 9.79% of net average assets and 17.40% of risk-weighted assets. Each of these measures is in excess of the requirements in effect for the Association at March 31, 2024, for designation as “well capitalized” under regulatory prompt corrective action provisions. Beginning this fiscal year, the Company entered into the final two years of the five-year transitional period, as provided by a final rule, after CECL was adopted in fiscal year 2021. Refer to the Liquidity and Capital Resources section of this Item 2 for additional discussion regarding regulatory capital requirements. 
 Promotion of Adjustable-Rate Loans and Shorter-Term Fixed-Rate Loans 
 We offer our "Smart Rate" adjustable-rate mortgage loan, which provides us with improved interest rate risk characteristics when compared to a 30-year, fixed-rate mortgage loan. Our “Smart Rate” adjustable-rate mortgage offers borrowers an interest rate lower than that of a 30-year, fixed-rate loan. The interest rate of the Smart Rate mortgage is locked for three or five years, then resets annually. The Smart Rate mortgage contains a feature to re-lock the rate an unlimited number of times at our then-current interest rate and fee schedule, for another three or five years (which must be the same as the original lock period) without having to complete a full refinance transaction. Re-lock eligibility is subject to a satisfactory payment performance history by the borrower (current at the time of re-lock, and no foreclosures or bankruptcies since the Smart Rate application was taken). In addition to a satisfactory payment history, re-lock eligibility requires that the property continues to be the borrower’s primary residence. The loan term cannot be extended in connection with a re-lock, nor can new funds be advanced. All interest rate caps and floors remain as originated. 
 We also offer a 10-year, fully amortizing fixed-rate, first mortgage loan. The 10-year, fixed-rate loan has a more desirable interest rate risk profile when compared to loans with fixed-rate terms of 15 to 30 years and can help to more effectively manage interest rate risk exposure, yet provides our borrowers with the certainty of a fixed interest rate throughout the life of the obligation. 
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 The following tables set forth our first mortgage loan production and balances segregated by loan structure at origination: 
 
 For the Six Months Ended March 31, 2024 For the Six Months Ended March 31, 2023 
 Amount Percent Amount Percent 
 (Dollars in thousands) 
 First Mortgage Loan Originations and Purchases: 
 
 ARM (all Smart Rate) production $ 99,778 24.4 % $ 305,682 37.2 % 
 Fixed-rate production: 
 Terms less than or equal to 10 years 
 3,729 0.9 19,695 2.4 
 Terms greater than 10 years 
 305,335 74.7 496,477 60.4 
 Total fixed-rate production 
 309,064 75.6 516,172 62.8 
 Total First Mortgage Loan Originations and Purchases 
 $ 408,842 100.0 % $ 821,854 100.0 % 

 
 March 31, 2024 September 30, 2023 
 Amount Percent Amount Percent 
 (Dollars in thousands) 
 Balance of First Mortgage Loans Held For Investment: 
 ARM (primarily Smart Rate) Loans $ 4,621,146 39.1 % $ 4,760,843 39.2 % 
 Fixed-rate Loans: 
 Terms less than or equal to 10 years 
 960,293 8.1 1,088,048 9.0 
 Terms greater than 10 years 
 6,232,998 52.8 6,275,775 51.8 
 Total fixed-rate loans 
 7,193,291 60.9 7,363,823 60.8 
 Total First Mortgage Loans Held For Investment $ 11,814,437 100.0 % $ 12,124,666 100.0 % 

 The following table sets forth the balances as of March 31, 2024, for all ARM loans segregated by the next scheduled interest rate reset date: 
 Current Balance of ARM Loans Scheduled for Interest Rate Reset 
 During the Fiscal Years Ending September 30, (Dollars in thousands) 
 
 2024 $ 170,374 
 2025 837,458 
 2026 1,389,863 
 2027 1,620,609 
 2028 493,782 
 2029 109,060 
 Total $ 4,621,146 

 At March 31, 2024 and September 30, 2023, mortgage loans held for sale, all of which were long-term, fixed-rate first mortgage loans and all of which were held for sale to Fannie Mae, totaled $9.7 million and $3.3 million, respectively. 
 
 
 
 
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 Loan Portfolio Yield 
 The following tables set forth the principal balance and interest yield as of March 31, 2024, for the portfolio of loans held for investment, by type of loan, structure and geographic location: 
 
 March 31, 2024 
 Balance Percent Yield 
 (Dollars in thousands) 
 Total Loans: 
 Fixed Rate 
 Terms less than or equal to 10 years $ 960,293 6.3 % 2.68 % 
 Terms greater than 10 years 6,232,998 41.1 3.93 
 Total Fixed-Rate Residential Mortgage loans 
 7,193,291 47.4 3.76 
 
 ARMs 4,621,146 30.5 3.23 
 Home Equity Loans and Lines of Credit 3,319,626 21.9 7.41 
 Construction and Other Loans 37,718 0.2 6.06 
 Total Loans Receivable $ 15,171,781 100.0 % 4.41 % 
 
 
 

 
 March 31, 2024 
 Balance Fixed Rate Balance Fixed Rate Percent 
 Yield 
 (Dollars in thousands) 
 Residential Mortgage Loans 
 Ohio $ 6,811,846 $ 5,236,737 76.9 % 3.75 % 
 Florida 2,071,925 998,510 48.2 3.39 
 Other 2,930,666 958,044 32.7 3.26 
 Total Residential Mortgage Loans 11,814,437 7,193,291 60.9 3.56 
 Home Equity Loans and Lines of Credit 
 Ohio 821,702 108,238 13.2 7.34 
 Florida 759,591 91,481 12.0 7.33 
 California 562,117 57,205 10.2 7.37 
 Other 1,176,216 64,478 5.5 7.52 
 Total Home Equity Loans and Lines of Credit 3,319,626 321,402 9.7 7.41 
 Construction and Other Loans 37,718 37,718 100.0 6.06 
 Total Loans Receivable $ 15,171,781 $ 7,552,411 49.8 % 4.41 % 

 
 
 Marketing of Home Equity Lines of Credit 
 We actively market home equity lines of credit, which carry an adjustable rate of interest indexed to the prime rate which provides interest rate sensitivity to that portion of our assets and is a meaningful strategy to manage our interest rate risk profile. Increasing our investments in loans with variable rates of interest help to better match the maturities and interest rates of our assets and liabilities, thereby reducing the exposure of our net interest income to changes in market interest rates. We strive to grow the home equity line of credit portfolio through offering competitive rates, marketing efforts and by utilizing partners to attract more home equity line of credit customers. At March 31, 2024, the principal balance of home equity lines of credit (including those in repayment) that are structured to reset with each prime rate adjustment totaled $2.90 billion. Our home equity lending is discussed in the Lending Activities section of this Item 2. 
 Extending the Duration of Funding Sources 
 As a complement to our strategies to shorten the duration of our interest-earning assets, as described above, we also seek to lengthen the duration of our interest-bearing funding sources. These efforts include monitoring the relative costs of alternative funding sources such as retail certificates of deposit, brokered certificates of deposit, and shorter-term (e.g. three months) funding, the durations of which are extended by correlated interest rate exchange contracts ("swap"). Funding sources 
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 are discussed in more detail within this Item 2 in the sections entitled Maintaining Access to Adequate Liquidity and Diverse Funding Sources to Support our Growth and Liquidity and Capital Resources. All of our swaps are subject to collateral pledges and require specific structural features to qualify for hedge accounting treatment. Hedge accounting treatment directs that periodic mark-to-market adjustments be recorded in other comprehensive income (loss) in the equity section of the balance sheet, rather than being included in operating results of the income statement. The Association's intent is that any swap to which it may be a party will qualify for hedge accounting treatment. 
 The Association uses swaps to extend the duration of its funding sources. Each of the Association's swap agreements is registered on the Chicago Mercantile Exchange and involves the exchange of interest payment amounts based on a notional principal balance. No exchange of principal amounts occur and the notional principal amount does not appear on our balance sheet. In each of the Association's agreements, interest paid is based on a fixed rate of interest throughout the term of each agreement while interest received is based on an interest rate that resets and compounds daily over a specified interval (generally three months) throughout the term of each agreement. On the initiation date of the swap, the agreed upon exchange interest rates reflect market conditions at that point in time. Swaps generally require counterparty collateral pledges that ensure the counterparties' ability to comply with the conditions of the agreement. Concurrent with the execution of each swap, the Association enters into a short-term borrowing in an amount equal to the notional amount of the swap and with interest rate resets aligned with the reset interval of the swap. Each individual swap agreement has been designated as a cash flow hedge of interest rate risk associated with either the Company's variable rate borrowings from the FHLB of Cincinnati or brokered CDs. In these challenging economic times with an extended inverted yield curve, the Association has found it financially beneficial to use swaps to extend the duration of our liabilities with a relatively lower borrowing cost. For more details, refer to Notes 6. BORROWED FUNDS and 13. DERIVATIVE INSTRUMENTS of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . 
 Each funding alternative is monitored and evaluated based on its effective interest payment rate, options exercisable by the creditor (early withdrawal, right to call, etc.), and collateral requirements. Refer to Notes 5. DEPOSITS and 6. BORROWED FUNDS for additional details on balances. The interest payment rate is a function of market influences that are specific to the nuances and market competitiveness/breadth of each funding source. Generally, early withdrawal options, subject to a fee, are available to our retail CD customers but not to holders of brokered CDs; issuer call options are not provided on our advances from the FHLB of Cincinnati; and we are not subject to early termination options with respect to our interest rate exchange contracts. Additionally, collateral pledges are not provided with respect to our retail CDs or our brokered CDs, but are required for our advances from the FHLB of Cincinnati as well as for our interest rate exchange contracts. We will continue to evaluate the structure of our funding sources based on current needs. 
 Selling Fixed Rate Loans in the Secondary Market 
 We also manage interest rate risk by selectively selling a portion of our long-term, fixed-rate mortgage loans in the secondary market. First mortgage loans (primarily fixed-rate mortgages with terms of 15 years or more, Home Ready and some loans purchased through our correspondent lending partner) are originated under Fannie Mae procedures and are eligible for sale to Fannie Mae either as whole loans or within mortgage-backed securities. Currently, certain types of loans (i.e. our Smart Rate adjustable-rate loans, 10-year fixed-rate loans, and first mortgage loans secured by certain property types) are originated under our legacy procedures, which are not eligible for sale to Fannie Mae. We can also manage interest rate risk by selling non-Fannie Mae compliant mortgage loans to private investors, although those transactions may be limited to loans that have established payment histories, strong borrower credit profiles and are supported by adequate collateral. Additionally, sales to private investors are dependent upon favorable market conditions, including motivated buyers, and involve more complicated negotiations and longer settlement timelines. 
 During the six months ended March 31, 2024, $121.3 million of agency-compliant, long-term (15 to 30 years), fixed-rate mortgage loans were sold, or committed to be sold, to Fannie Mae on a servicing retained basis. Of these sold loans, $5.1 million were originated through our traditional mortgage banking brand, known as "Mortgage Passport", and $116.2 million were originated or purchased as other agency-compliant first mortgage loans. At March 31, 2024, loans classified as held for sale totaled $9.7 million. At March 31, 2024, we serviced $1.95 billion of loans we originated and later sold to investors. 
 We continue to consider liquidity and balance sheet management, as well as secondary market pricing, in evaluating the opportunity to sell loans. Additionally, we've expanded our ability to sell certain fixed-rate loans to Fannie through the use of more traditional mortgage banking activities, including a proprietary approach to risk-based pricing and loan-level pricing adjustments in markets outside of Ohio and Florida. This approach is not expected to significantly impact our financial results in fiscal year 2024. Loan sales are discussed in more detail within the Liquidity and Capital Resources section of this Item 2. 
 Monitoring and Limiting Our Credit Risk. While, historically, we had been successful in limiting our credit risk exposure by generally imposing high credit standards with respect to lending, the memory of the 2008 housing market collapse 
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 and financial crisis is a constant reminder to focus on credit risk. In response to the evolving economic landscape, we continuously revise and update our quarterly analysis and evaluation procedures, as needed, for each category of our lending with the objective of identifying and recognizing all appropriate credit losses. At March 31, 2024, 89% of our assets consisted of residential real estate loans (both “held for sale” and “held for investment”) and home equity loans and lines of credit. Our analytic procedures and evaluations include specific reviews of all home equity loans and lines of credit that become 90 or more days past due, as well as specific reviews of all first mortgage loans that become 180 or more days past due. We transfer performing home equity lines of credit subordinate to first mortgages delinquent greater than 90 days to non-accrual status. We also charge-off performing loans to collateral value and classify those loans as non-accrual within 60 days of notification of all borrowers filing Chapter 7 bankruptcy, that have not reaffirmed or been dismissed, regardless of how long the loans have been performing. 
 In an effort to limit our credit risk exposure consistent with the low risk appetite approved by the Board of Directors, the credit eligibility criteria is evaluated to ensure a successful homeowner has the primary source of repayment, followed by a collateral position that allows for a secondary source of repayment, if needed. Products that do not result in an effective mix of repayment ability are not offered. We use stringent, conservative lending standards for underwriting to reduce our credit risk. For first mortgage loans originated during the current quarter, the average credit score was 775 and the average LTV was 71% at origination. Our current delinquency levels reflect the higher credit standards to which we subject all new originations. As of March 31, 2024, loans originated or purchased had a balance of $15.23 billion, of which $28.3 million, or 0.2%, were delinquent. 
 One aspect of our credit risk concern relates to high concentrations of our loans that are secured by residential real estate in specific states, particularly Ohio and Florida, where a large portion of our historical lending has occurred. At March 31, 2024, approximately 57.6% and 17.6% of the combined total of our residential Core and construction loans held for investment and approximately 24.8% and 22.9% of our home equity loans and lines of credit were secured by properties in Ohio and Florida, respectively. In an effort to moderate the concentration of our credit risk exposure in individual states, we have utilized direct mail marketing, our internet site and our customer service call center to extend our lending activities to other attractive geographic locations. Currently, in addition to Ohio and Florida, we are actively lending in 24 other states and the District of Columbia, and as a result of that activity, the concentration ratios of the combined total of our residential Core and construction loans held for investment in Ohio and Florida have trended downward from their September 30, 2010, levels when the concentrations were 79.1% in Ohio and 19.0% in Florida. Of the total mortgage loans originated in the six months ended March 31, 2024, 22.0% are secured by properties in states other than Ohio or Florida. 
 Maintaining Access to Adequate Liquidity and Diverse Funding Sources to Support our Growth. For most insured depositories, customer and community confidence are critical to their ability to maintain access to adequate liquidity and to conduct business in an orderly manner. We believe that a well capitalized institution is one of the most important factors in nurturing customer and community confidence. At March 31, 2024, the Association’s ratio of Tier 1 (leverage) capital to net average assets (a basic industry measure that deems 5.00% or above to represent a “well capitalized” status) was 9.79%. We expect to continue to remain a well capitalized institution. 
 In managing its level of liquidity, the Company monitors available funding sources, which include attracting new deposits (including brokered deposits), borrowing from others, the conversion of assets to cash and the generation of funds through profitable operations. The Company has traditionally relied on retail deposits as its primary means in meeting its funding needs. To attract deposits, we typically offer rates that are competitive with the rates on similar products offered by other financial institutions. At March 31, 2024, deposits totaled $9.94 billion (including $1.26 billion of brokered CDs), while borrowings totaled $4.96 billion and borrowers’ advances and servicing escrows totaled $125.4 million, combined. In evaluating funding sources, we consider many factors, including cost, collateral, duration and optionality, current availability, expected sustainability, impact on operations and capital levels. 
 We preserve the availability of alternative funding sources through various mechanisms. Effectively, this permits us to increase the rates that we offer on our deposit products thereby attracting more potential customers. First, we pledge available real estate mortgage loans with the FHLB of Cincinnati and the FRB-Cleveland. At March 31, 2024, the Association had the ability to borrow a maximum of $6.82 billion from the FHLB of Cincinnati and $693.2 million from the FRB-Cleveland Discount Window. As of March 31, 2024, our capacity for additional borrowing from the FHLB of Cincinnati was $1.88 billion. Second, we have the ability to purchase overnight Fed Funds up to $575.0 million through various arrangements with other institutions. Third, we invest in high quality marketable securities that exhibit limited market price variability and, to the extent that they are not needed as collateral for borrowings, can be sold in the institutional market and converted to cash. At March 31, 2024, our investment securities portfolio totaled $520.2 million. Finally, cash flows from operating activities have been a regular source of funds. During the six months ended March 31, 2024 and 2023, cash flows from operations provided $50.5 million and $43.1 million, respectively. 
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 Overall, while customer and community confidence can never be assured, the Company believes that its liquidity is adequate and that it has access to adequate alternative funding sources. 
 Monitoring and Controlling Our Operating Expenses. We continue to focus on managing operating expenses. We've successfully been able to reduce our operating expenses to offset the pressure of margin compression resulting from the extended inverted yield curve. Our ratio of annualized non-interest expense to average assets was 1.20% for the six months ended March 31, 2024, and 1.36% for the six months ended March 31, 2023. As of March 31, 2024, our average assets per full-time employee and our average deposits per full-time employee were $18.1 million and $10.6 million, respectively. We believe that each of these measures compares favorably with industry averages. Our relatively high average deposits (exclusive of brokered CDs) held at our branch offices ($234.4 million per branch office as of March 31, 2024) contributes to our expense management efforts by limiting the overhead costs of serving our customers. We will continue our efforts to control operating expenses to help safeguard against margin compression. 
 
 
 
 
 Critical Accounting Policies and Estimates 
 Critical accounting policies and estimates are defined as those made in accordance with U.S. GAAP that involve significant judgments, estimates and uncertainties, and could potentially give rise to materially different results under different assumptions and conditions. We believe that the most critical accounting policies and estimates upon which our financial condition and results of operations depend, and which involve the most complex subjective decisions or assessments, are those with respect to our allowance for credit losses, income taxes and pension benefits as described in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2023. 
 Lending Activities 
 Allowance for Credit Losses 
 We provide for credit losses based on a life of loan methodology. Accordingly, all credit losses are charged to, and all recoveries are credited to, the related allowance. Additions to the allowance for credit losses are provided by charges to income based on various factors which, in our judgment, deserve current recognition in estimating life of loan credit losses. We regularly review the loan portfolio and off-balance sheet exposures and make provisions (or releases) for losses in order to maintain the allowance for credit losses in accordance with U.S. GAAP. Our allowance for credit losses is a general valuation allowance (GVA) on our portfolio made up of: 
 (1) quantitative GVAs for loans, which are general allowances for credit losses for each loan type based on historical loan loss experience; 
 (2) quantitative GVAs for off-balance sheet credit exposures, which are comprised of expected lifetime losses on unfunded loan commitments to extend credit where the obligations are not unconditionally cancellable; and 
 (3) qualitative GVAs, which are adjustments to the quantitative GVAs, maintained to cover uncertainties that affect the estimate of expected credit losses for each loan type. 
 On October 1, 2023, the Individual Valuation Allowance (IVA) established for any loans dependent on cash flows, such as performing TDRs, was eliminated with the adoption of ASU 2022-02. Subsequently, all non-collaterally dependent modifications have an allowance estimated through the lifetime loss model. The qualitative GVAs expand our ability to identify and estimate probable losses and are based on our evaluation of the following factors, some of which are consistent with factors that impact the determination of quantitative GVAs. For example, delinquency statistics (both current and historical) are used in developing the quantitative GVAs while the trending of the delinquency statistics is considered and evaluated in the determination of the qualitative GVAs. Factors impacting the determination of qualitative GVAs include: 
 • changes in lending policies and procedures including underwriting standards, collection, charge-off or recovery practices; 
 • management's view of changes in national, regional, and local economic and business conditions and trends including treasury yields, housing market factors and trends, such as the status of loans in foreclosure, real estate in judgment and real estate owned, and unemployment statistics and trends and how it aligns with economic modeling forecasts; 
 • changes in the nature and volume of the portfolios including home equity lines of credit nearing the end of the draw period and adjustable-rate mortgage loans nearing a rate reset; 
 • changes in the experience, ability or depth of lending management; 
 • changes in the volume or severity of past due loans, volume of non-accrual loans, or the volume and severity of adversely classified loans including the trending of delinquency statistics (both current and historical), historical loan loss experience and trends, the frequency and magnitude of loan modifications, and uncertainty surrounding borrowers’ ability to recover from temporary hardships for which short-term loan modifications are granted; 
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 • changes in the quality of the loan review system; 
 • changes in the value of the underlying collateral including asset disposition loss statistics (both current and historical) and the trending of those statistics, and additional charge-offs and recoveries on individually reviewed loans; 
 • existence of any concentrations of credit; 
 • effect of other external factors such as competition, market interest rate changes or legal and regulatory requirements including market conditions and regulatory directives that impact the entire financial services industry; and 
 • limitations within our models to predict life of loan net losses. 
 Home equity loans and lines of credit generally have higher credit risk than traditional residential mortgage loans. These loans and credit lines are usually in a second lien position and when combined with the first mortgage, result in generally higher overall loan-to-value ratios. In a stressed housing market with high delinquencies and decreasing housing prices, these higher loan-to-value ratios represent a greater risk of loss to the Company. A borrower with more equity in the property has a vested interest in keeping the loan current when compared to a borrower with little or no equity in the property. We conduct an expanded loan level evaluation of our home equity loans and lines of credit, including bridge loans used to aid borrowers in buying a new home before selling their old one, which are delinquent 90 days or more. This expanded evaluation is in addition to our traditional evaluation procedures. We have established an allowance for our unfunded commitments on this portfolio, which is recorded in other liabilities. In general, a considerable portion of our gross charge-offs originate from our home equity loans and lines of credit portfolios. At March 31, 2024, we had an amortized cost of $3.36 billion in home equity loans and home equity lines of credit outstanding, of which $4.5 million, or 0.13% were delinquent 90 days or more. 
 The allowance for credit losses is evaluated based upon the combined total of the quantitative and qualitative GVAs. Periodically, the carrying value of loans and factors impacting our credit loss analysis are evaluated and the allowance is adjusted accordingly. While we use the best information available to make evaluations, future additions to the allowance may be necessary based on unforeseen changes in loan quality and economic conditions. 
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 The following table sets forth activity for credit losses segregated by geographic location for the periods indicated. The majority of our Residential Core and Home Today loan portfolios are secured by properties located in Ohio, and therefore were not segregated by state. 
 For the Three Months Ended March 31, For the Six Months Ended March 31, 
 2024 2023 2024 2023 
 (Dollars in thousands) 
 Allowance balance for credit losses on loans (beginning of the period) $ 69,084 $ 74,477 $ 77,315 $ 72,895 
 Adoption of ASU 2022-02 
 — — (10,262) — 
 Charge-offs on real estate loans: 
 
 
 
 
 Total Residential Core 
 37 92 187 206 
 
 
 
 
 Total Residential Home Today — 71 30 243 
 Home equity loans and lines of credit 
 Ohio 124 171 242 234 
 Florida 35 16 55 48 
 California — 1 96 14 
 Other 45 243 141 263 
 Total Home equity loans and lines of credit 204 431 534 559 
 
 
 Total charge-offs 241 594 751 1,008 
 Recoveries on real estate loans: 
 Residential Core 213 290 574 604 
 Residential Home Today 493 582 979 1,272 
 Home equity loans and lines of credit 786 926 1,456 2,007 
 
 
 Total recoveries 1,492 1,798 3,009 3,883 
 Net recoveries 1,251 1,204 2,258 2,875 
 Release of allowance for credit losses on loans 
 (2,166) (1,543) (1,142) (1,632) 
 Allowance balance for loans (end of the period) $ 68,169 $ 74,138 $ 68,169 $ 74,138 
 
 Allowance balance for credit losses on unfunded commitments (beginning of the period) $ 25,491 $ 26,110 $ 27,515 $ 27,021 
 
 Provision (release) for credit losses on unfunded loan commitments 
 1,166 543 (858) (368) 
 Allowance balance for unfunded loan commitments (end of the period) 26,657 26,653 26,657 26,653 
 Allowance balance for all credit losses (end of the period) $ 94,826 $ 100,791 $ 94,826 $ 100,791 
 Ratios: 
 
 Allowance for credit losses on loans to non-accrual loans at end of the period 193.37 % 226.75 % 193.37 % 226.75 % 
 Allowance for credit losses on loans to the total amortized cost in loans at end of the period 0.45 % 0.51 % 0.45 % 0.51 % 

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 The following table sets forth additional information with respect to net recoveries by category for the periods indicated. 
 
 For the Three Months Ended March 31, For the Six Months Ended March 31, 
 2024 2023 2024 2023 
 Net recoveries to average loans outstanding (annualized) 
 
 Real estate loans: 
 Residential Core 
 — % 0.01 % 0.01 % 0.01 % 
 Residential Home Today 0.01 0.01 0.01 0.01 
 Home Equity loans and lines of credit 0.02 0.01 0.01 0.02 
 
 Total net recoveries to average loans outstanding (annualized) 
 0.03 % 0.03 % 0.03 % 0.04 % 

 We continue to evaluate loans becoming delinquent for potential losses and record provisions for the estimate of those losses. We reported net recoveries in each quarter for the past five years, primarily due to improvements in the values of collateral properties used to secure loans that were fully or partially charged off after the 2008 collapse of the housing market. Charge-offs are recognized on loans identified as collateral-dependent and subject to individual review when the collateral value does not sufficiently support full repayment of the obligation. Recoveries are recognized on previously charged-off loans as borrowers perform their repayment obligations or as loans with improved collateral positions reach final resolution. During the six months ended March 31, 2024 and March 31, 2023, recoveries exceeded loan charge-offs by $2.3 million and $2.9 million, respectively. 
 During the six months ended March 31, 2024, total gross charge-offs decreased slightly compared to the six months ended March 31, 2023. Delinquent loans continue to be evaluated for potential losses and provisions are recorded for the estimate of potential losses of those loans. Subject to changes in the economic environment, a moderate level of charge-offs are expected as delinquent loans are resolved in the future and uncollected balances are charged against the allowance. 
 During the three months ended March 31, 2024, the total allowance for credit losses increased to $94.8 million, from $94.6 million at December 31, 2023. The total allowance for credit losses is comprised of the asset portion, which is applied to the loan portfolio and the liability portion, which is applied to off-balance sheet exposures, primarily related to undrawn equity exposures. During the three months ended March 31, 2024, the asset portion of the total allowance decreased to $68.2 million from $69.1 million, and the liability portion of the total allowance increased to $26.7 million from $25.5 million. We recorded a $1.0 million net release of allowance for credit losses for the period, consisting of a $2.2 million release of provision on loans and a $1.2 million provision for unfunded commitments. 
 Because many variables are considered in determining the appropriate level of general valuation allowances, directional changes in individual considerations do not always align with the directional change in the balance of a particular component of the general valuation allowance. Changes in the allowance for credit losses on loan balances during the three months ended March 31, 2024, were primarily related to new growth in the home equity loans and lines of credit portfolio, partially offset by a decrease in the residential Core portfolio balance primarily due to aging. 
 The amortized cost of the residential Core portfolio decreased 1.5%, or $179.4 million, and its total allowance decreased 3.4% or $1.7 million as of March 31, 2024, compared to December 31, 2023. The amortized cost of the home equity loans and lines of credit portfolio increased 3.8%, or $122.6 million, and its total allowance increased 2.5% to $23.0 million from $22.4 million at December 31, 2023. As we are no longer originating loans under our Home Today program, there is an expected net recovery position for this portfolio which was $2.6 million at March 31, 2024, and $2.8 million at December 31, 2023. Under the CECL methodology, the life of loan concept allows for qualitative adjustments for the expected future recoveries of previously charged-off loans, which is driving the allowance balance for the Home Today loans to be negative. Refer to the "Activity in the Allowance for Credit Losses" and "Analysis of the Allowance for Credit Losses" tables in Note 4. LOANS AND ALLOWANCES FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for more information. 
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 The following tables set forth the allowance for credit losses allocated by loan category, the percent of allowance in each category to the total allowance on loans, and the percent of loans in each category to total loans at the dates indicated. The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories. The tables do not include allowances for credit losses on unfunded loan commitments, which are primarily related to undrawn home equity lines of credit. 
 
 March 31, 2024 September 30, 2023 
 Amount Percent of
Allowance
to Total
Allowance Percent of
Loans in
Category to Total 
Loans Amount Percent of
Allowance
to Total
Allowance Percent of
Loans in
Category to Total 
Loans 
 (Dollars in thousands) 
 Real estate loans: 
 Residential Core $ 47,714 70.0% 77.6% $ 55,375 71.6% 79.4% 
 Residential Home Today (2,624) (3.8) 0.3 (1,236) (1.6) 0.3 
 Home equity loans and lines of credit 22,998 33.7 21.9 23,047 29.8 19.9 
 Construction 81 0.1 0.2 129 0.2 0.4 
 
 Allowance for credit losses on loans $ 68,169 100.0% 100.0% $ 77,315 100.0% 100.0% 

 Loan Portfolio Composition 
 The following table sets forth the composition of the portfolio of loans held for investment, by type of loan segregated by geographic location, at the indicated dates, excluding loans held for sale. The majority of our Home Today loan portfolio is secured by properties located in Ohio and the balances of other loans are immaterial. Therefore, neither was segregated by geographic location. 
 
 March 31, 2024 September 30, 2023 
 Amount Percent Amount Percent 
 (Dollars in thousands) 
 Real estate loans: 
 Residential Core 
 Ohio $ 6,770,047 $ 6,893,547 
 Florida 2,070,135 2,135,853 
 Other 2,930,601 3,048,758 
 Total Residential Core 11,770,783 77.6 % 12,078,158 79.4 % 
 
 
 
 
 Total Residential Home Today 43,654 0.3 46,508 0.3 
 Home equity loans and lines of credit 
 Ohio 821,702 773,324 
 Florida 759,591 666,517 
 California 562,117 513,904 
 Other 1,176,216 1,076,781 
 Total Home equity loans and lines of credit 3,319,626 21.9 3,030,526 19.9 
 Construction loans 
 Ohio 28,019 41,153 
 Florida 4,132 7,253 
 Other 858 — 
 Total Construction 33,009 0.2 48,406 0.4 
 Other loans 4,709 — 4,411 — 
 Total loans receivable 15,171,781 100.0 % 15,208,009 100.0 % 
 Deferred loan expenses, net 61,047 60,807 
 Loans in process (15,040) (25,754) 
 Allowance for credit losses on loans (68,169) (77,315) 
 Total loans receivable, net $ 15,149,619 $ 15,165,747 

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 The following table provides the amortized cost and an analysis of our residential mortgage loans disaggregated by refreshed FICO score, year of origination and portfolio at March 31, 2024. The Company treats the FICO score information as demonstrating that underwriting guidelines reduce risk rather than as a credit quality indicator utilized in the evaluation of credit risk. 
 
 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term 
 By fiscal year of origination 
 2024 2023 2022 2021 2020 Prior Total 
 (Dollars in thousands) 
 March 31, 2024 
 Real estate loans: 
 Residential Core 
 <680 
 $ 4,919 $ 58,961 $ 104,605 $ 69,750 $ 41,322 $ 164,628 $ — $ — $ 444,185 
 680-740 
 56,401 261,764 406,672 245,055 150,358 426,562 — — 1,546,812 
 741+ 
 245,788 1,222,547 2,543,412 1,613,434 1,071,794 2,918,920 — — 9,615,895 
 Unknown (1) 
 626 2,998 24,878 35,163 20,789 103,078 — — 187,532 
 Total Residential Core 307,734 1,546,270 3,079,567 1,963,402 1,284,263 3,613,188 — — 11,794,424 
 Residential Home Today (2) 
 
 <680 
 — — — — — 21,572 — — 21,572 
 680-740 
 — — — — — 8,894 — — 8,894 
 741+ 
 — — — — — 10,294 — — 10,294 
 Unknown (1) 
 — — — — — 2,419 — — 2,419 
 Total Residential Home Today — — — — — 43,179 — — 43,179 
 Home equity loans and lines of credit 
 <680 
 2,145 8,377 2,726 1,354 261 1,199 143,934 11,831 171,827 
 680-740 
 33,530 33,370 9,877 2,648 568 2,582 594,163 13,402 690,140 
 741+ 
 91,025 142,629 52,402 17,467 5,048 12,929 2,112,957 30,556 2,465,013 
 Unknown (1) 
 35 106 451 142 119 754 24,075 5,050 30,732 
 Total Home equity loans and lines of credit 126,735 184,482 65,456 21,611 5,996 17,464 2,875,129 60,839 3,357,712 
 Construction 
 <680 
 — 588 — — — — — — 588 
 680-740 
 1,155 2,953 406 — — — — — 4,514 
 741+ 
 3,397 8,653 612 — — — — — 12,662 
 
 Total Construction 4,552 12,194 1,018 — — — — — 17,764 
 Total net real estate loans $ 439,021 $ 1,742,946 $ 3,146,041 $ 1,985,013 $ 1,290,259 $ 3,673,831 $ 2,875,129 $ 60,839 $ 15,213,079 
 
 (1) Data necessary for stratification is not readily available. 
 (2) No new originations of Home Today loans since fiscal 2016. 

 
 
 
 
 
 
 
 
 
 
 
 
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 The following table provides amortized cost and an analysis of our residential mortgage loans by origination LTV, origination year and portfolio at March 31, 2024. LTVs are not updated subsequent to origination except as part of the charge-off process. 
 
 Revolving Loans Amortized Cost Basis Revolving Loans Converted to Term 
 By fiscal year of origination 
 2024 2023 2022 2021 2020 Prior Total 
 (Dollars in thousands) 
 March 31, 2024 
 Real estate loans: 
 Residential Core 
 
 <80% 
 $ 124,511 $ 553,102 $ 1,812,468 $ 1,344,137 $ 677,566 $ 1,944,668 $ — $ — $ 6,456,452 
 80-89.9% 
 148,046 786,251 1,054,246 573,840 551,007 1,532,749 — — 4,646,139 
 90-100% 
 35,177 206,917 211,277 44,364 55,494 133,224 — — 686,453 
 >100% 
 — — — — — 718 — — 718 
 Unknown (1) 
 — — 1,576 1,061 196 1,829 — — 4,662 
 Total Residential Core 307,734 1,546,270 3,079,567 1,963,402 1,284,263 3,613,188 — — 11,794,424 
 Residential Home Today (2) 
 
 <80% 
 — — — — — 8,767 — — 8,767 
 80-89.9% 
 — — — — — 13,703 — — 13,703 
 90-100% 
 — — — — — 20,709 — — 20,709 
 
 
 Total Residential Home Today — — — — — 43,179 — — 43,179 
 Home equity loans and lines of credit 
 <80% 122,980 179,440 63,457 21,119 5,963 13,987 2,693,021 41,715 3,141,682 
 80-89.9% 3,574 5,042 1,969 492 33 1,437 180,453 17,427 210,427 
 90-100% 181 — — — — 667 556 182 1,586 
 >100% — — 30 — — 1,371 674 279 2,354 
 Unknown (1) 
 — — — — — 2 425 1,236 1,663 
 Total Home equity loans and lines of credit 126,735 184,482 65,456 21,611 5,996 17,464 2,875,129 60,839 3,357,712 
 Construction 
 <80% 2,914 7,525 652 — — — — — 11,091 
 80-89.9% 1,638 4,669 366 — — — — — 6,673 
 
 
 
 Total Construction 4,552 12,194 1,018 — — — — — 17,764 
 Total net real estate loans $ 439,021 $ 1,742,946 $ 3,146,041 $ 1,985,013 $ 1,290,259 $ 3,673,831 $ 2,875,129 $ 60,839 $ 15,213,079 
 
 (1) Market data necessary for stratification is not readily available. 
 (2) No new originations of Home Today loans since fiscal 2016. 

 At March 31, 2024, the unpaid principal balance of the home equity loans and lines of credit portfolio consisted of $478.6 million in home equity loans (including $60.8 million of home equity lines of credit, which are in repayment and no longer eligible to be drawn upon, and $12.4 million in bridge loans) and $2.84 billion in home equity lines of credit. 
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 The following table sets forth credit exposure, principal balance, percent delinquent 90 days or more, the mean CLTV percent at the time of origination and the current mean CLTV percent of home equity loans, home equity lines of credit and bridge loan portfolio as of March 31, 2024. Home equity lines of credit in the draw period are reported according to geographic distribution. 
 
 Credit
Exposure Principal
Balance Percent
Delinquent
90 Days or More Mean CLTV
Percent at
Origination (2) Current Mean
CLTV Percent (3) 
 (Dollars in thousands) 
 Home equity lines of credit in draw period (by state) 
 Ohio $ 2,246,520 $ 670,053 0.12 % 60 % 43 % 
 Florida 1,475,675 626,354 0.10 55 42 
 California 1,211,988 470,827 0.05 59 50 
 Other (1) 2,820,521 1,073,817 0.11 63 51 
 Total home equity lines of credit in draw period 7,754,704 2,841,051 0.10 60 46 
 Home equity lines in repayment, home equity loans and bridge loans 478,575 478,575 0.33 57 46 
 Total $ 8,233,279 $ 3,319,626 0.14 % 60 % 47 % 

 _________________ 
 (1) No other individual state has a committed or drawn balance greater than 10% of our total home equity lending portfolio and 5% of total loan balances. 
 (2) Mean CLTV percent at origination for all home equity lines of credit is based on the committed amount. 
 (3) Current Mean CLTV is based on best available first mortgage and property values as of March 31, 2024. Property values are estimated using HPI data published by the FHFA. Current Mean CLTV percent for home equity lines of credit in the draw period is calculated using the committed amount. Current Mean CLTV on home equity lines of credit in the repayment period is calculated using the principal balance. 
 The principal balance of home equity lines of credit in the draw period that have a current mean CLTV over 80% or unknown is $25.4 million, or 0.9% at March 31, 2024 . In recognition of the previous past weakness in the housing market, we continue to conduct an expanded loan level evaluation of our home equity lines of credit which are delinquent 90 days or more. 
 At March 31, 2024, 28.5% of the home equity lending portfolio was either in a first lien position (14.7%), in a subordinate (second) lien position behind a first lien that we held (11.5%) or behind a first lien that was held by a loan that we originated, sold and now serviced for others (2.3%). At March 31, 2024, 12.6% of the home equity line of credit portfolio in the draw period were making only the minimum payment on the outstanding line balance. Minimum payments include both a principal and interest component. 
 
 
 
 
 
 
 
 
 
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 Delinquent Loans 
 The following tables set forth the amortized cost in loan delinquencies by type, segregated by geographic location and duration of delinquency as of the dates indicated. The majority of our Home Today loan portfolio is secured by properties located in Ohio, and there are no other loans with delinquent balances. There were no delinquencies in the construction loan portfolio as of the dates presented. 
 
 Loans Delinquent for 
 March 31, 2024 30-89 Days 90 Days or More Total 
 Real estate loans: (Dollars in thousands) 
 Residential Core 
 Ohio $ 4,937 $ 2,853 $ 7,790 
 Florida 1,723 1,589 3,312 
 Other 1,374 4,366 5,740 
 Total Residential Core 8,034 8,808 16,842 
 
 
 
 
 Residential Home Today 1,128 914 2,042 
 Home equity loans and lines of credit 
 Ohio 713 1,057 1,770 
 Florida 1,205 954 2,159 
 California 935 829 1,764 
 Other 2,101 1,680 3,781 
 Total Home equity loans and lines of credit 4,954 4,520 9,474 
 
 
 Total $ 14,116 $ 14,242 $ 28,358 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
 Loans Delinquent for 
 September 30, 2023 30-89 Days 90 Days or More Total 
 Real estate loans: (Dollars in thousands) 
 Residential Core 
 Ohio $ 2,616 $ 4,410 $ 7,026 
 Florida 1,207 1,340 2,547 
 Other 1,620 2,518 4,138 
 Total Residential Core 5,443 8,268 13,711 
 Residential Home Today 989 855 1,844 
 Home equity loans and lines of credit 
 Ohio 910 600 1,510 
 Florida 973 813 1,786 
 California 529 790 1,319 
 Other 1,549 1,673 3,222 
 Total Home equity loans and lines of credit 3,961 3,876 7,837 
 
 
 Total $ 10,393 $ 12,999 $ 23,392 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 Total loans seriously delinquent (i.e. delinquent 90 days or more) were 0.09% of total net loans at March 31, 2024 and at September 30, 2023. The percentage of loans seriously delinquent to total net loans increased in the residential Core portfolio to 0.06% at March 31, 2024, from 0.05% at September 30, 2023. Such loans in the residential Home Today portfolio remained at 0.01% for both periods. Serious delinquencies in the home equity loans and lines of credit portfolio remained at 0.03% at March 31, 2024 from September 30, 2023. 
 Although delinquencies remain at or near historic lows, recent economic trends and rising interest rates have led to increased delinquencies in all portfolios. Interest rates on home equity lines of credit are tied to the prime rate of interest which has trended upward over the last two years, resulting in higher and less affordable monthly payments for some borrowers. 
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 Non-Performing Assets 
 The following table sets forth the amortized costs and categories of our non-performing assets at the dates indicated. There were no construction loans reported as non-accrual for the dates presented. 
 
 March 31,
2024 September 30,
2023 
 (Dollars in thousands) 
 Non-accrual loans: 
 Real estate loans: 
 Residential Core $ 22,545 $ 19,414 
 Residential Home Today 4,141 4,623 
 Home equity loans and lines of credit 8,567 7,877 
 
 
 Total non-accrual loans 
 35,253 31,914 
 Real estate owned 230 1,444 
 
 Total non-performing assets $ 35,483 $ 33,358 
 Ratios: 
 Total non-accrual loans to total loans 0.23 % 0.21 % 
 Total non-accrual loans to total assets 0.21 % 0.19 % 
 Total non-performing assets to total assets 0.21 % 0.20 % 

 The amortized cost of collateral-dependent loans includes loans that have returned to accrual status when contractual payments became less than 90 days past due. These loans continue to be individually evaluated based on collateral until, at a minimum, contractual payments are less than 30 days past due. Also, the amortized cost of non-accrual loans includes loans that are not included in the amortized cost of collateral-dependent loans because they are included in loans collectively evaluated for credit losses. 
 The table below sets forth a reconciliation of the amortized costs and categories between non-accrual loans and collateral-dependent loans at the dates indicated. 
 
 March 31,
2024 September 30,
2023 
 (Dollars in thousands) 
 Non-Accrual Loans $ 35,253 $ 31,914 
 Accruing Collateral-Dependent Loans 
 8,738 10,962 
 Less: Loans Collectively Evaluated (4,845) (4,647) 
 Total Collateral-Dependent loans $ 39,146 $ 38,229 

 
 
 
 
 
 
 
 

 We continue to modify loans to work with borrowers who are experiencing financial difficulty to keep their homes and to preserve neighborhoods. Loan modifications may include interest rate reductions, term extensions (generally including capitalization of delinquent amounts), significant payment delays, other, or a combination thereof. For additional information, refer to Note 4. LOANS AND ALLOWANCES FOR CREDIT LOSSES . 
 
 
 
 Comparison of Financial Condition at March 31, 2024 and September 30, 2023 
 Total assets increased $99.2 million, or 0.6%, to $17.02 billion at March 31, 2024, from $16.92 billion at September 30, 2023. This increase was mainly the result of an increase in cash and cash equivalents, partially offset by a decreases in loans held for investment, and prepaid expenses and other assets. 
 Cash and cash equivalents increased $127.6 million, or 27.3%, to $594.3 million at March 31, 2024, from $466.7 million at September 30, 2023. Cash is managed to maintain the level of liquidity described later in the Liquidity and Capital Resources section. 
 Investment securities, all of which are classified as available for sale, increased $11.9 million to $520.2 million at March 31, 2024, from $508.3 million at September 30, 2023. The increase was the result of a $3.2 million increase in the mortgage-backed securities portfolio, and an $8.6 million increase in the balance of U.S. government and agency obligations during the six months ended March 31, 2024. There were no sales of investment securities during the six months ended March 31, 2024. 
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 Loans held for investment, net of deferred loan fees and allowance for credit losses, decreased $16.1 million, or less than 1%, to $15.15 billion at March 31, 2024, from $15.17 billion at September 30, 2023, as repayments and sales of mortgage loans held for investment outpaced originations and additional draws on existing accounts. This decrease included a $310.2 million, or 2.6%, decrease in residential mortgage loans to $11.81 billion at March 31, 2024, from $12.12 billion at September 30, 2023. In addition, there was a $289.1 million increase in the balance of home equity loans and lines of credit during the six months ended March 31, 2024. During the six months ended March 31, 2024, $99.8 million of three- and five-year “Smart Rate” loans were originated while $309.1 million of fixed-rate first mortgage loans were originated. Between September 30, 2023 and March 31, 2024, the total fixed-rate portion of the first mortgage loan portfolio decreased $170.5 million. During the six months ended March 31, 2024, $121.3 million of first mortgage loans were sold or committed to sell to Fannie Mae. 
 Commitments originated for home equity loans, lines of credit, and bridge loans were $915.4 million for the six months ended March 31, 2024, compared to $720.0 million for the six months months ended March 31, 2023. At March 31, 2024, pending commitments to originate new equity loans and lines of credit were $202.9 million. Refer to the Controlling Our Interest Rate Risk Exposure section of the Overview for additional information. 
 The allowance for credit losses was $94.8 million, or 0.63% of total loans receivable, at March 31, 2024, including a $26.7 million liability for unfunded commitments. The allowance for credit losses was $104.8 million, or 0.69% of total loans receivable, at September 30, 2023, including a $27.5 million liability for unfunded commitments. Refer to Note 4. LOANS AND ALLOWANCES FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for additional discussion. 
 The amount of FHLB stock owned decreased $6.7 million or 2.7% to $240.4 million at March 31, 2024, from $247.1 million at September 30, 2023. The decrease is a result of stock redemptions by the FHLB. FHLB collateral requirements on funds borrowed dictate the minimum amount of stock owned at any given time. 
 Total bank owned life insurance contracts increased $1.4 million, to $313.5 million at March 31, 2024, from $312.1 million at September 30, 2023, due to changes in cash surrender value, offset by death benefits received. 
 Other assets, including prepaid expenses, decreased $26.3 million to $91.0 million at March 31, 2024, from $117.3 million at September 30, 2023. The decrease was primarily due to a $22.3 million decline in swap margin receivable. 
 Deposits increased $485.8 million, or 5.1%, to $9.94 billion at March 31, 2024, from $9.45 billion at September 30, 2023. The increase in deposits resulted primarily from a $868.4 million increase in CDs, inclusive of brokered CDs, as current market interest rates, product development and marketing have attracted additional balances and new customers to our CDs. The change also included a $10.5 million increase in accrued interest payable. The increase was partially offset by a $194.2 million decrease in savings accounts, a $106.6 million decrease in money market accounts, and a $92.3 million decrease in checking accounts. The balance of brokered CDs included in total deposits at March 31, 2024, increased by $99.1 million to $1.26 billion compared to a balance of $1.16 billion at September 30, 2023. Based on FDIC insurance limits by ownership structure, the total uninsured deposits were $335.9 million and $322.5 million at March 31, 2024 and September 30, 2023, respectively. 
 Borrowed funds decreased $318.2 million, or 6.0%, to $4.96 billion at March 31, 2024, from $5.27 billion at September 30, 2023. The decrease was primarily due to borrowings being replaced at maturity, when needed, by retail deposits. The total balance of borrowed funds at March 31, 2024, all from the FHLB, included $1.83 billion of term advances with a weighted average maturity of 2.2 years and $3.10 billion of short-term advances aligned with interest rate swap contracts. Interest rate swaps have been used to extend the duration of short-term borrowings, at inception, by paying a fixed rate of interest and receiving the variable rate. Refer to the Extending the Duration of Funding Sources section of the Overview for additional discussion regarding short-term borrowings and interest-rate swaps. 
 Borrowers' advances for insurance and taxes decreased by $24.9 million to $99.5 million at March 31, 2024, from $124.4 million at September 30, 2023. This change primarily reflects the cyclical nature of real estate tax payments that have been collected from borrowers and are in the process of being remitted to various taxing agencies. 
 Accrued expenses and other liabilities decreased by $19.8 million to $93.1 million at March 31, 2024, from $112.9 million at September 30, 2023. The decrease is primarily due to a $10.8 million decrease in deferred income taxes, a $1.7 million decrease in bonus accruals, and a $4.1 million decrease in real estate tax payments remitted on behalf of borrowers. 
 Total shareholders’ equity decreased $19.9 million, or 1.0%, to $1.91 billion at March 31, 2024, from $1.93 billion at September 30, 2023. Activity reflects $41.4 million of net income in the current year reduced by dividends of $29.4 million. Other changes include $42.8 million of net negative change in accumulated other comprehensive income, primarily related to changes in market values due to fluctuations in market interest rates and maturities of swap contracts, and a $7.9 increase related to a change in accounting principle, ASU 2022-02, net of tax. During the six months ended March 31, 2024, we did not 
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 repurchase shares of our common stock. The Company's eighth stock repurchase program allows for a total of 10,000,000 shares to be repurchased, with 5,191,951 shares remaining to be repurchased at March 31, 2024. As a result of a mutual member vote, Third Federal Savings and Loan Association of Cleveland, MHC (the "MHC"), the mutual holding company that owns approximately 80.9% of the outstanding stock of the Company, was able to waive its receipt of its share of the dividend paid. Refer to Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds for additional details regarding the repurchase of shares of common stock and the dividend waiver. 
 
 
 
 Comparison of Operating Results for the Three Months Ended March 31, 2024 and 2023 
 Average Balances and Yields . The following table sets forth average balances, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effects thereof were not material. Average balances are derived from daily average balances. Non-accrual loans are included in the computation of loan average balances, but only cash payments received on those loans during the period presented are reflected in the yield. The yields set forth below include the effect of deferred fees, deferred expenses, discounts and premiums that are amortized or accreted to interest income or interest expense. 
 
 Three Months Ended Three Months Ended 
 March 31, 2024 March 31, 2023 
 Average
Balance Interest
Income/
Expense Yield/
Cost (1) Average
Balance Interest
Income/
Expense Yield/
Cost (1) 
 (Dollars in thousands) 
 Interest-earning assets: 
 Interest-earning cash equivalents 
 $ 720,657 $ 9,919 5.51 % $ 350,437 $ 3,947 4.51 % 
 Investment securities 
 72,091 907 5.03 3,649 11 1.21 
 Mortgage-backed securities 
 448,653 3,569 3.18 475,902 3,444 2.89 
 Loans (2) 
 15,163,185 162,970 4.30 14,517,771 136,835 3.77 
 Federal Home Loan Bank stock 
 244,560 6,128 10.02 230,496 3,315 5.75 
 Total interest-earning assets 16,649,146 183,493 4.41 % 15,578,255 147,552 3.79 % 
 Noninterest-earning assets 505,145 527,935 
 Total assets $ 17,154,291 $ 16,106,190 
 Interest-bearing liabilities: 
 Checking accounts 
 $ 887,584 98 0.04 % $ 1,128,560 2,229 0.79 % 
 Savings accounts 
 1,561,331 5,598 1.43 1,668,115 5,028 1.21 
 Certificates of deposit 
 7,548,314 66,989 3.55 6,110,460 32,619 2.14 
 Borrowed funds 
 5,033,253 39,430 3.13 5,112,767 38,408 3.00 
 Total interest-bearing liabilities 15,030,482 112,115 2.98 % 14,019,902 78,284 2.23 % 
 Noninterest-bearing liabilities 212,206 209,161 
 Total liabilities 15,242,688 14,229,063 
 Shareholders’ equity 1,911,603 1,877,127 
 Total liabilities and shareholders’ equity $ 17,154,291 $ 16,106,190 
 Net interest income $ 71,378 $ 69,268 
 Interest rate spread (1)(3) 1.43 % 1.56 % 
 Net interest-earning assets (4) $ 1,618,664 $ 1,558,353 
 Net interest margin (1)(5) 1.71 % 1.78 % 
 Average interest-earning assets to average interest-bearing liabilities 110.77 % 111.12 % 
 Selected performance ratios: 
 Return on average assets (1) 0.48 % 0.40 % 
 Return on average equity (1) 4.33 % 3.39 % 
 Average equity to average assets 11.14 % 11.65 % 

 _________________ 
 (1) Annualized. 
 (2) Loans include both mortgage loans held for sale and loans held for investment. 
 (3) Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. 
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 (4) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. 
 (5) Net interest margin represents net interest income divided by total interest-earning assets. 
 General . Net income increased $4.8 million, or 30%, to $20.7 million for the quarter ended March 31, 2024, from $15.9 million for the quarter ended March 31, 2023. The increase in net income was attributable primarily to an increase in net interest income and decreases related to compensation and marketing expenses. 
 
 
 Interest and Dividend Income. Interest and dividend income increased $35.9 million, or 24%, to $183.5 million during the current quarter compared to $147.6 million during the same quarter in the prior year. The increase in interest and dividend income was primarily the result of an increase in interest income on loans, as well as increases to income earned on mortgage-backed securities, FHLB stock, and other interest-bearing cash equivalents. 
 Interest income on loans increased $26.2 million, or 19%, to $163.0 million during the current quarter compared to $136.8 million during the same quarter in the prior year. This change was primarily attributed to a 53 basis point increase in the average yield on loans for the quarter ended March 31, 2024, to 4.30%, compared to 3.77% the same quarter last year. It was also attributed to a 4%, or $645.4 million, increase in the average balance of loans to $15.16 billion for the quarter ended March 31, 2024, compared to $14.52 billion during the same quarter last year as new loan production exceeded principal repayments and loan sales over the past year. 
 Interest Expense . Interest expense increased $33.8 million, or 43%, to $112.1 million during the current quarter compared to $78.3 million during the quarter ended March 31, 2023. The increase primarily resulted from higher costs of certificates of deposit and borrowed funds. 
 Interest expense on CDs, net of related interest rate swap contracts, increased $34.4 million, or 105%, to $67.0 million during the current quarter compared to $32.6 million during the quarter ended March 31, 2023. The increase was attributed to a 141 basis point increase in the average rate paid on CDs to 3.55% for the current quarter from 2.14% for the same quarter last year. Additionally, there was a $1.44 billion, or 23.5%, increase in the average balance of CDs to $7.55 billion during the current quarter from $6.11 billion during the same quarter of the prior year. Interest rates on deposits generally increased in response to increases in market interest rates, as well as the higher rates paid by our competition. 
 Interest expense on borrowed funds, net of related interest rate swap contracts, increased $1.0 million, or 3%, to $39.4 million during the current quarter compared to $38.4 million during the quarter ended March 31, 2023. This increase was mainly attributed to a 13 basis point increase in the average rate paid on these funds, to 3.13% for the current quarter from 3.00% for the same quarter last year. In addition, the average balance of borrowed funds decreased $79.5 million, or 2%, to $5.03 billion during the current quarter from an average balance of $5.11 billion during the same quarter of the prior year. Refer to the Extending the Duration of Funding Sources section of the Overview and Comparison of Financial Condition for further discussion. 
 Net Interest Income. Net interest income increased $2.1 million to $71.4 million during the current quarter when compared to $69.3 million for the three months ended March 31, 2023. Both the average balance and the yield of interest earning assets increased when compared to the same period last year. And to a lesser extent, there was also an increase in the cost of interest-bearing liabilities when compared to the same period last year. 
 
 
 Average interest-earning assets during the current quarter increased $1.07 billion, or 7%, when compared to the quarter ended March 31, 2023. The increase in average interest-earning assets was attributed primarily to an increase in the average balances of loans. In addition to the increase in average interest-earning assets, the yield on those assets increased 62 basis points to 4.41% from 3.79%, as a result of market interest rate increases. The interest rate spread decreased 13 basis points to 1.43% compared to 1.56% during the same quarter last year. The net interest margin decreased seven basis points to 1.71% in the current quarter compared to 1.78% for the same quarter last year. The decrease in our interest rate spread and net interest margin is primarily due to the impact of a prolonged period of historically low interest rates followed by a rapid and substantial rise in interest rates, that started in March 2022, along with an extended period of yield curve inversion. Refer to Controlling Our Interest Rate Risk Exposure of the Overview section for further discussion. 
 Provision (Release) for Credit Losses. We recorded a release of the allowance for credit losses of $1.0 million on loans and off-balance sheet exposures during each of the quarters ended March 31, 2024 and March 31, 2023. As delinquencies in the portfolio have been resolved through pay-offs, short sale or foreclosure, or management determines the collateral is not sufficient to satisfy the loan balance, uncollected balances have been charged against the allowance for credit losses previously provided. Recoveries of amounts charged against the allowance for credit losses occur when collateral values increase and homes are sold or when borrowers repay the amounts previously charged-off. In the current quarter, we recorded net recoveries of $1.3 million compared to net recoveries of $1.2 million in the quarter ended March 31, 2023. Credit loss provisions (releases) are recorded with the objective of aligning our allowance for credit loss balances with our current estimates of loss in 
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 the portfolio. Refer to the Lending Activities section of Item 2. and Note 4. LOANS AND ALLOWANCES FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for further discussion. 
 Non-Interest Income. Non-interest income increased $0.4 million, or 8%, to $5.7 million during the current quarter compared to $5.3 million during the quarter ended March 31, 2023. 
 Non-Interest Expense. Non-interest expense decreased $3.4 million, or 6%, to $52.2 million during the current quarter compared to $55.6 million during the quarter ended March 31, 2023. The decrease primarily consisted of a $1.6 million decrease in marketing expenses, and a $2.9 million decrease in salaries and employee benefits, partially offset by a $0.5 million increase in FDIC premiums. 
 Income Tax Expense. The provision for income taxes increased $1.1 million to $5.2 million during the current quarter compared to $4.1 million during the quarter ended March 31, 2023. The provision for the current quarter included $4.7 million of federal income tax provision and $0.5 million of state income tax expense. The provision for the quarter ended March 31, 2023, included $3.7 million of federal income tax provision and $0.4 million of state income tax expense. Our effective federal tax rate was 18.4% and 19.3% during the quarters ended March 31, 2024 and March 31, 2023, respectively. 
 
 
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 Comparison of Operating Results for the Six Months Ended March 31, 2024 and 2023 
 Average balances and yields . The following table sets forth average balances, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effects thereof were not material. Average balances are derived from daily average balances. Non-accrual loans are included in the computation of loan average balances, but only cash payments received on those loans during the period presented are reflected in the yield. The yields set forth below include the effect of deferred fees, deferred expenses, discounts and premiums that are amortized or accreted to interest income or interest expense. 
 
 Six Months Ended Six Months Ended 
 March 31, 2024 March 31, 2023 
 Average
Balance Interest
Income/
Expense Yield/
Cost (1) Average
Balance Interest
Income/
Expense Yield/
Cost (1) 
 (Dollars in thousands) 
 Interest-earning assets: 
 Interest-earning cash equivalents 
 $ 559,581 $ 15,043 5.38 % $ 352,325 $ 7,196 4.08 % 
 Investment securities 
 68,435 1,757 5.13 3,634 22 1.21 
 Mortgage-backed securities 446,532 7,114 3.19 469,933 6,495 2.76 
 Loans (2) 
 15,197,767 325,005 4.28 14,457,228 266,500 3.69 
 Federal Home Loan Bank stock 
 257,550 11,733 9.11 224,889 6,309 5.61 
 Total interest-earning assets 16,529,865 360,652 4.36 % 15,508,009 286,522 3.70 % 
 Noninterest-earning assets 529,303 506,658 
 Total assets $ 17,059,168 $ 16,014,667 
 Interest-bearing liabilities: 
 Checking accounts 
 $ 912,701 216 0.05 % $ 1,156,728 4,639 0.80 % 
 Savings accounts 
 1,641,398 12,510 1.52 1,717,235 8,735 1.02 
 Certificates of deposit 
 7,197,898 124,285 3.45 6,041,692 56,357 1.87 
 Borrowed funds 
 5,130,746 83,171 3.24 4,992,956 72,366 2.90 
 Total interest-bearing liabilities 14,882,743 220,182 2.96 % 13,908,611 142,097 2.04 % 
 Noninterest-bearing liabilities 245,503 233,257 
 Total liabilities 15,128,246 14,141,868 
 Shareholders’ equity 1,930,922 1,872,799 
 Total liabilities and shareholders’ equity $ 17,059,168 $ 16,014,667 
 Net interest income $ 140,470 $ 144,425 
 Interest rate spread (1)(3) 1.40 % 1.66 % 
 Net interest-earning assets (4) $ 1,647,122 $ 1,599,398 
 Net interest margin (1)(5) 1.70 % 1.86 % 
 Average interest-earning assets to average interest-bearing liabilities 111.07 % 111.50 % 
 Selected performance ratios: 
 Return on average assets (1) 0.49 % 0.48 % 
 Return on average equity (1) 4.29 % 4.07 % 
 Average equity to average assets 11.32 % 11.69 % 

 _________________ 
 (1) Annualized. 
 (2) Loans include both mortgage loans held for sale and loans held for investment. 
 (3) Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities. 
 (4) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities. 
 (5) Net interest margin represents net interest income divided by total interest-earning assets. 
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 General. Net income increased $3.3 million to $41.4 million for the six months ended March 31, 2024, compared to $38.1 million for the six months ended March 31, 2023. The increase in net income was primarily driven by an increase in non-interest income and decreases in compensation and marketing expenses, partially offset by a decrease in net interest income income. 
 Interest and Dividend Income. Interest and dividend income increased $74.2 million, or 26%, to $360.7 million during the six months ended March 31, 2024, compared to $286.5 million during the same six months in the prior year. The increase in interest and dividend income resulted mainly from an increase in interest income on loans, other interest earning assets, as well as increases in income earned on FHLB stock. 
 Interest income on loans increased $58.5 million, or 22%, to $325.0 million for the six months ended March 31, 2024, compared to $266.5 million for the six months ended March 31, 2023. This increase was attributed mainly to an 59 basis point increase in the average yield on loans to 4.28% for the six months ended March 31, 2024, from 3.69% for the same six months in the prior fiscal year. Adding to the increase was a $740.5 million increase in the average balance of loans to $15.20 billion for the current six months compared to $14.46 billion for the prior fiscal year period as new loan production exceeded repayments and loan sales during the current fiscal year. 
 Interest Expense. Interest expense increased $78.1 million, or 55%, to $220.2 million during the current six months compared to $142.1 million during the six months ended March 31, 2023. This increase mainly resulted from an increase in yields and average volume of deposits and borrowed funds. 
 Interest expense on CDs, net of related interest rate swap contracts, increased $67.9 million, or 120%, to $124.3 million during the six months ended March 31, 2024, compared to $56.4 million during the six months ended March 31, 2023. The increase was attributed primarily to a 158 basis point increase in the average rate paid on CDs to 3.45% during the current six months from 1.87% during the same six months last fiscal year. In addition, there was a $1.16 billion, or 19%, increase in the average balance of CDs to $7.20 billion from $6.04 billion during the same six months of the prior fiscal year. Interest expense on savings accounts increased $3.8 million to $12.5 million during the six months ended March 31, 2024, compared to interest expense of $8.7 million for the six-month period ended March 31, 2023. Interest expense on checking accounts decreased $4.4 million to $0.2 million during the six months ended March 31, 2024, compared to interest expense of $4.6 million for the six-month period ended March 31, 2023. Rates were increased for deposits in response to increases in market interest rates, as well as increases in the rates paid by our competitors. 
 Interest expense on borrowed funds, net of related interest rate swap contracts, increased $10.8 million, or 15%, to $83.2 million during the six months ended March 31, 2024, from $72.4 million during the six months ended March 31, 2023. The increase was primarily the result of higher average interest rates for the six months ended March 31, 2024. There was a 34 basis point increase in the average rate paid for these funds to 3.24% from 2.90% for the six months ended March 31, 2024 and March 31, 2023, respectively. The average balance of borrowed funds increased $137.8 million, or 3%, to $5.13 billion during the current six months from $4.99 billion during the same six months of the prior fiscal year. Refer to the Extending the Duration of Funding Sources section of the Overview and Comparison of Financial Condition for further discussion. 
 Net Interest Income. Net interest income decreased $3.9 million, or 3%, to $140.5 million during the six months ended March 31, 2024, from $144.4 million during the six months ended March 31, 2023. The net decrease consisted of a $74.2 million increase in interest income offset by a $78.1 million increase in interest expense. 
 Average interest-earning assets increased during the current six months by $1.02 billion, or 7%, to $16.53 billion when compared to the six months ended March 31, 2023. The increase in average assets was attributed primarily to a $740.5 million increase in the average balance of our loans, a $32.7 million increase in FHLB stock and a $207.3 million increase in interest-bearing cash equivalents. The yield on average interest-earning assets increased 66 basis points to 4.36% for the six months ended March 31, 2024, from 3.70% for the six months ended March 31, 2023. Average interest-bearing liabilities increased $974.1 million to $14.88 billion for the six months ended March 31, 2024, compared to $13.91 billion for the six months ended March 31, 2023. Average interest-bearing liabilities experienced a 92 basis point increase in cost and the interest rate spread decreased 26 basis points to 1.40% compared to 1.66% during the same six months last fiscal year. The net interest margin was 1.70% for the current six months and 1.86% for the same six months in the prior fiscal year period. 
 Provision (Release) for Credit Losses . We recorded a release of the allowance for credit losses on loans and off-balance sheet exposures of $2.0 million during the six months ended March 31, 2024, and March 31, 2023. In the current six months, we recorded net recoveries of $2.3 million, as compared to net recoveries of $2.9 million for the six months ended March 31, 2023. Credit loss provisions (releases) are recorded with the objective of aligning our allowance for credit loss balances with our current estimates of loss in the portfolio. As delinquencies in the portfolio have been resolved through pay-off, short sale or foreclosure, or management determines the collateral is not sufficient to satisfy the loan balance, uncollected balances have been charged against the allowance for credit losses previously provided. Refer to the Lending Activities section of the 
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 Overview and Note 4. LOANS AND ALLOWANCES FOR CREDIT LOSSES of the NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for further discussion. 
 Non-Interest Income. Non-interest income increased $1.5 million, or 14%, to $12.0 million during the six months ended March 31, 2024, compared to $10.5 million during the six months ended March 31, 2023. The increase in non-interest income was primarily due to a $1.0 million increase in cash surrender value and death benefits from bank owned life insurance, a $0.3 million increase in the net gain on sale of loans, offset by a $0.3 million decrease in loan fees and service charges. There were loan sales of $121.3 million during the six months ended March 31, 2024, compared to loan sales of $34.6 million during the six months ended March 31, 2023. 
 Non-Interest Expense. Non-interest expense decreased $6.3 million, or 6%, to $102.5 million during the six months ended March 31, 2024 compared to $108.8 million during the six months ended March 31, 2023. This decrease was driven by a $4.2 million decrease in salaries and employee benefits, a $4.9 million decrease in marketing expenses, partially offset by a $1.6 million increase in federal insurance premiums and a $0.7 million increase in other operating expenses. 
 Income Tax Expense. The provision for income taxes increased $0.6 million to $10.6 million during the six months ended March 31, 2024 from $10.0 million for the six months ended March 31, 2023 reflecting the higher level of pre-tax income during the more recent period. The provision for the current six months included $9.8 million of federal income tax provision and $0.8 million of state income tax provision. The provision for the six months ended March 31, 2023 included $9.0 million of federal income tax provision and $1.1 million of state income tax provision. Our effective federal tax rate was 19.1% during the six months ended March 31, 2024 and 19.0% during the six months ended March 31, 2023. 
 
 
 
 Liquidity and Capital Resources 
 Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, advances from the FHLB of Cincinnati, borrowings from the FRB-Cleveland Discount Window, overnight Fed Funds through various arrangements with other institutions, proceeds from brokered CD transactions, principal repayments and maturities of securities, and sales of loans. 
 In addition to the primary sources of funds described above, we have the ability to obtain funds through the use of collateralized borrowings in the wholesale markets, and from sales of securities. Also, debt issuance by the Company and access to the equity capital markets via a supplemental minority stock offering or a full conversion (second-step) transaction remain as other potential sources of liquidity, although these channels generally require up to nine months of lead time. 
 While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by interest rates, economic conditions and competition. The Association’s Asset/Liability Management Committee is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We generally seek to maintain a minimum liquidity ratio of 5% (which we compute as the sum of the average cash and cash equivalents plus unencumbered investment securities for which ready markets exist, divided by total average assets). For the three months ended March 31, 2024, our liquidity ratio averaged 6.44%. We believe that we had sufficient sources of liquidity to satisfy our short- and long-term liquidity needs as of March 31, 2024. 
 We regularly adjust our investments in liquid assets based upon our assessment of expected loan demand, expected deposit flows, yields available on interest-earning deposits and securities, scheduled liability maturities and the objectives of our asset/liability management program. Excess liquid assets are generally invested in interest-earning deposits and short- and intermediate-term securities. 
 Our most liquid assets are cash and cash equivalents. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At March 31, 2024, cash and cash equivalents totaled $594.3 million, which represented an increase of 27% from $466.7 million at September 30, 2023. 
 Investment securities classified as available-for-sale, which provide additional sources of liquidity, totaled $520.2 million at March 31, 2024. 
 During the six-month period ended March 31, 2024, loan sales, including commitments to sell, totaled $121.3 million, which included sales to Fannie Mae, consisting of $105.3 million of long-term, fixed-rate, agency-compliant, non-Home Ready first mortgage loans and $16.0 million of loans that qualified under Fannie Mae's Home Ready initiative. At March 31, 2024, $9.7 million of long-term, fixed-rate residential first mortgage loans were classified as “held for sale". 
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 Our cash flows are derived from operating activities, investing activities and financing activities as reported in our CONSOLIDATED STATEMENTS OF CASH FLOWS . 
 At March 31, 2024, we had $277.7 million in outstanding commitments to originate loans. In addition to commitments to originate loans, we had $4.91 billion in unfunded home equity lines of credit to borrowers. CDs due within one year of March 31, 2024, totaled $4.41 billion, or 44.4% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including loan sales, sales of investment securities, other deposit products, including new CDs, brokered CDs, FHLB advances, borrowings from the FRB-Cleveland Discount Window or other collateralized borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the CDs due on or before March 31, 2025. We believe, however, based on past experience, that a significant portion of such deposits will remain with us. Generally, we have the ability to attract and retain deposits by adjusting the interest rates offered. 
 Our primary investing activities are originating residential mortgage loans, home equity loans and lines of credit and purchasing investment securities. During the six months ended March 31, 2024, we originated $408.8 million of residential mortgage loans, and $915.4 million of commitments for home equity loans and lines of credit, while during the six months ended March 31, 2023, we originated $821.9 million of residential mortgage loans and $720.0 million of commitments for home equity loans and lines of credit. We purchased $96.7 million of securities during the six months ended March 31, 2024, and $63.7 million during the six months ended March 31, 2023. Also, during the six months ended March 31, 2024, we purchased $85.8 million of long-term, fixed-rate first mortgage loans. 
 Financing activities consist primarily of changes in deposit accounts, changes in the balances of principal and interest owed on loans serviced for others, FHLB advances, including any collateral requirements related to interest rate swap agreements and borrowings from the FRB-Cleveland Discount Window. We experienced a net increase in total deposits of $485.8 million during the six months ended March 31, 2024, which reflected the active management of the offered rates on maturing CDs, compared to a net increase of $78.2 million during the six months ended March 31, 2023. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors, and by other factors. During the six months ended March 31, 2024, there was a $99.1 million increase in the balance of brokered CDs (exclusive of acquisition costs and subsequent amortization), which had a balance of $1.26 billion at March 31, 2024. At March 31, 2023, the balance of brokered CDs was $556.8 million. Principal and interest owed on loans serviced for others experienced a net decrease of $3.9 million to $25.9 million during the six months ended March 31, 2024, compared to a net decrease of $2.7 million to $27.2 million during the six months ended March 31, 2023. During the six months ended March 31, 2024, we decreased our total borrowings by $318.2 million as we funded: new loan originations, our capital initiatives, and actively managed our liquidity ratio. During the six months ended March 31, 2023, our total borrowings increased by $411.7 million. 
 Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB of Cincinnati and the FRB-Cleveland Discount Window, and arrangements with other institutions to purchase overnight Fed Funds, each of which provides an additional source of funds. On December 19, 2023, the FHLB of Cincinnati, subsequent to revising their Credit Policy Manual in September 2023 to decrease the allowable borrowing limit from 50% to 40% of total assets, approved an exception to increase the Association's allowable borrowing limit to 45% of total assets. The exception requires the Association to maintain compliance with certain credit and regulatory criteria. In order to ensure adequate borrowing capacity with the FHLB, the Company has started replacing a portion of its 90-day FHLB advances with like-term brokered deposits. In March 2023, as a result of two recent bank failures, the Federal Reserve created the BTFP as an additional source of liquidity. The program offers loans up to one year in length against pledges of high-quality securities, such as U.S. Treasuries, agency debt and mortgage-backed securities, owned as of March 21, 2023. The BTFP ceased extending new loans on March 11, 2024. 
 In December 2023, the Association received notice from the FHLB of Cincinnati that, effective January 19, 2024, the Association will be placed on restriction by the FHFA due to a second consecutive "Needs Improvement" rating, received on our CRA exam covering the period ended December 31, 2019. During the period of restriction, the Association will not have access to long-term advances (advances with a term greater than one year) from the FHLB of Cincinnati and will not be eligible for participation in the Bank's Affordable Housing Program or other Community Investment Cash Advance programs. With certain exceptions, the restriction will remain in place until the Association receives a "Satisfactory" or better rating on a CRA exam and otherwise complies with standards established by the FHFA's Community Support Regulation. Existing advances and future advances with a term of one year or less, including 90 day advances used to facilitate longer term interest rate swap agreements, will not be affected. In addition to interest rate swap agreements, we have the ability to obtain funding with terms greater than one year through retail and brokered CDs, generally at market rates of interest similar to other long-term funding alternatives. Therefore, we expect our ability to access long-term funding to continue, and our funding alternatives will not have a material impact to our funding costs, interest margin and spreads. 
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 At March 31, 2024, we had $4.93 billion of FHLB of Cincinnati advances, no outstanding borrowings from the FRB-Cleveland Discount Window and no outstanding borrowings in the form of Fed Funds. During the six months ended March 31, 2024, we had average outstanding advances from the FHLB of Cincinnati of $5.13 billion, as compared to average outstanding advances of $4.99 billion during the six months ended March 31, 2023. Refer to the Extending the Duration of Funding Sources section of the Overview for further discussion. 
 The Association and the Company are subject to various regulatory capital requirements, including a risk-based capital measure. The Basel III capital framework ("Basel III Rules") includes both a revised definition of capital and guidelines for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. 
 In 2019, a final rule adopted by the federal banking agencies provided banking organizations with the option to phase in, over a three-year period , the adverse day-one regulatory capital effects of the adoption of the CECL accounting standard. In 2020, as part of its response to the impact of COVID-19, U.S. federal banking regulatory agencies issued a final rule which provides banking organizations that implement CECL during the 2020 calendar year the option to delay for two years an estimate of CECL’s effect on regulatory capital, relative to the incurred loss methodology’s effect on regulatory capital, followed by a three-year transition period, which the Association and Company have adopted. During the two-year delay, the Association and Company added back to CET1 100% of the initial adoption impact of CECL, plus 25% of the cumulative quarterly changes in the allowance for credit losses. After two years, the quarterly transitional amounts, along with the initial adoption impact of CECL, are deemed to be fixed and will be phased out of CET1 capital over the three-year period ending in 2025. 
 The Association is subject to the "capital conservation buffer" requirement level of 2.5%. The requirement limits capital distributions and certain discretionary bonus payments to management if the institution does not hold a "capital conservation buffer" in addition to the standard minimum capital requirements. At March 31, 2024, the Association exceeded the regulatory requirement for the "capital conservation buffer". 
 As of March 31, 2024, the Association exceeded all regulatory requirements to be considered “Well Capitalized” as presented in the table below (dollar amounts in thousands). Capital remains a source of financial strength for the Association and the Company. Preserving capital to levels in excess of regulatory minimums is a priority for the Association, especially given the pressures in the economic environment. The Association intends to maintain minimum capital ratios to exceed total capital to risk-weighted assets of 13.0%, tier 1 (leverage) capital to net average assets of 9.0%, and tier 1 capital to risk-weighted assets of 11.0%. 
 Actual Well Capitalized Levels 
 Amount Ratio Amount Ratio 
 Total Capital to Risk-Weighted Assets $ 1,752,714 18.13 % $ 966,596 10.00 % 
 Tier 1 (Leverage) Capital to Net Average Assets 1,681,816 9.79 % 858,618 5.00 % 
 Tier 1 Capital to Risk-Weighted Assets 1,681,816 17.40 % 773,277 8.00 % 
 Common Equity Tier 1 Capital to Risk-Weighted Assets 1,681,816 17.40 % 628,287 6.50 % 

 
 
 The capital ratios of the Company as of March 31, 2024, are presented in the table below (dollar amounts in thousands). 
 
 Actual 
 Amount Ratio 
 Total Capital to Risk-Weighted Assets $ 1,913,177 19.78 % 
 Tier 1 (Leverage) Capital to Net Average Assets 1,842,279 10.72 % 
 Tier 1 Capital to Risk-Weighted Assets 1,842,279 19.05 % 
 Common Equity Tier 1 Capital to Risk-Weighted Assets 1,842,279 19.05 % 

 In addition to the operational liquidity considerations described above, which are primarily those of the Association, the Company, as a separate legal entity, also monitors and manages its own, parent company-only liquidity, which provides the source of funds necessary to support all of the parent company's stand-alone operations, including its capital distribution strategies which encompass its share repurchase and dividend payment programs. The Company's primary source of liquidity is dividends received from the Association. The amount of dividends that the Association may declare and pay to the Company in any calendar year, without the receipt of prior approval from the OCC but with prior notice to the FRB-Cleveland, cannot exceed net income for the current calendar year-to-date period plus retained net income (as defined) for the preceding two calendar years, reduced by prior dividend payments made during those periods. At March 31, 2024, the Company had, in the 
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 form of cash and a demand loan from the Association, $152.6 million of funds readily available to support its stand-alone operations. 
 The Company’s eighth stock repurchase program, which authorized the repurchase of up to 10,000,000 shares of the Company’s outstanding common stock, was approved by the Board of Directors on October 27, 2016, and repurchases began on January 6, 2017. There were 4,808,049 shares repurchased under that program between its start date and March 31, 2024. During the six months ended March 31, 2024, the Company did not repurchase any shares of its common stock. 
 On July 11, 2023, Third Federal Savings, MHC received the approval of its members with respect to the waiver of dividends on the Company’s common stock the MHC owns, up to a total of $1.13 per share, to be declared on the Company’s common stock during the 12 months subsequent to the members’ approval (i.e., through July 11, 2024). The members approved the waiver by casting 60% of the eligible votes, with 97% of the votes cast, voting in favor of the waiver. Third Federal Savings, MHC is the 81% majority shareholder of the Company. 
 Following the receipt of the members' approval at the July 11, 2023, meeting, Third Federal Savings, MHC filed a notice with, and received the non-objection from the FRB-Cleveland for the proposed dividend waivers. Third Federal Savings, MHC waived its right to receive $0.2825 per share dividend payments on September 26, 2023, December 13, 2023, and March 21, 2024. 
 The payment of dividends, support of asset growth and strategic stock repurchases are planned to continue in the future as the focus for future capital deployment activities.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
TFS Financial CORP 10-Q

Item 2. Management’s Discussion and Analysis
